Analysis of Bank of America Top Picks For Q3
Bank of America released its top ten picks for the third quarter of 2023. I’m going to hit all of these and give my recommendations for each one. Their first stock is American Homes 4 Rent.
American Homes 4 Rent (AMH) is a REIT, or real estate investment trust. Basically, AMH buys property, renovates, and then rents/leases out. They’ve been around since 2012 and made a tidy profit in the wake of the ‘08 crisis. AMH brought in about 1.5 billion in revenue last year and 272 million in net income. That’s a margin of 18%. They do pay a dividend with a yield of 2.27 percent, which I honestly don’t love. Dividends are cool and all, but I would rather the company reinvest the money than pay it out. They have a 44% CAGR (compound annual growth rate) over the past five years. They have a 7.2% average revenue growth rate YoY over the past seven years, with 8.5% predicted for this year. EPS was 0.71 but is predicted to shrink over the coming years. Their shareholders include Vanguard, Blackrock, JP Morgan, Sachs, and a couple of pension funds. The case for them is pretty strong, and honestly, I really might buy some myself. They appear primed for growth in a housing market that I believe has finished cooling. Also, this industry as a whole is really interesting to me. I live in a pretty small town in Western North Carolina so this business model is fairly new to me. I read about corporate titans pushing out actual homebuyers a couple of years ago but I hadn’t realized that it was such an established model. My biggest hesitation with a corporation that buys real estate (they build some, but mostly buy) is government regulation. I could very easily see a housing crisis developing in which public vitriol could easily be pointed at this company. I don’t know if that might be crazy, but as of right now, I see no reason to not buy.
The next company BOA is naming as a buy is Bath and Body Works. I don’t even have to read anything, this is a poorly run brick-and-mortar company. I don’t care that they are enjoying short-term success or that much smarter people than me believe they are a good investment. They have an inherently faulty business model. Maybe they will survive, but I see no future for growth. I don’t know how they get better or improve. I won’t spend money on them and neither should you.
The third company listed is Data Dog (DDOG) a cloud services company. Honestly, I don’t understand their company. They give out cloud system assistance. Because I don’t understand their company too well, I won’t give advice (I’m not Cramer.) However, I can tell you that cloud security and servicing are not going away even though security services have become less necessary over the past year or so. These things are cyclical (30 Rock) and should be treated as such. You should take a look, and maybe you’ll understand better because this doesn’t seem like a bad company.
Dexcom is the fourth company Bank of America listed. They are a health services company mostly centered around diabetes. If you’ve been around those with diabetes or have a TV you’ve probably seen that pad thing that goes on their arm. You could press your phone to it and get your data back. Typically, I don’t put much stock in margins but their profit margins have stayed in the mid 60’s for the past five years. All signs are pointing up for them as all projections have growth continuing, they have more cash than debt, and no dividend. They are covered up and down in patents on their diabetes technology. But, I will not invest. I make a personal rule to not touch pharmaceuticals. They are intensely volatile, and I’m not a doctor. Without more advanced education it can be hard to pick the right company. There are just too many unknowns for me.
The fifth company and last I have for this part is Fortive (FTV.) Fortive is a technology conglomerate with a focus on software. Revenue of six billion, and profit of three and a half billion. Honestly, I wouldn’t buy this one either. They seem a bit unfocused, most rating agencies have held for them and I won’t be buying. I just don’t get where the buy rating is coming from. Nothing about Fortive seems excellent or worth buying over other tech conglomerates. They are eight out of sixteen in their sector, I just don’t get it.
